{"url_path":"/sec/csgs/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-02-19","source_url":"https://www.sec.gov/Archives/edgar/data/1005757/0001193125-26-059632-index.html","accession_number":"0001193125-26-059632","cik":"0001005757","ticker":"CSGS","issuer_name":"CSG SYSTEMS INTERNATIONAL INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/1005757/0001193125-26-059632-index.html","primary_entity_key":"0001005757","primary_entity_name":"CSG SYSTEMS INTERNATIONAL INC"},"word_count":7456,"has_tables":true,"body_markdown":"Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations\n\nPlan of Merger\n\nAs discussed in Part I, Item 1. \"Business\", on October 29, 2025, we entered into the Merger Agreement with NEC and the Merger Sub, whereby the Merger Sub will merge with and into CSG, with CSG continuing as the surviving corporation as a wholly owned subsidiary of NEC.\n\nAs of December 31, 2025, in connection with the proposed Merger, we have recognized $13.7 million of acquisition-related costs primarily within Selling, General and Administrative expenses (“SG&A”) in our Income Statement, of which approximately $10 million will be paid upon closing. We expect to continue to incur additional costs relating to the proposed Merger, such as financial advisory, legal, accounting, and other professional services fees, along with retention bonuses. Total future costs related to the proposed Merger cannot be estimated at this time.\n\nInformation about the Merger Agreement and the Merger is set forth in our Definitive Proxy Statement on Schedule 14A filed with the SEC on December 16, 2025, as supplemented. See Note 2 to our Financial Statements for additional information.\n\nManagement Overview\n\nResults of Operations. A summary of our results of operations for 2025 and 2024, and other key performance metrics, are as follows (in thousands, except percentages and per share amounts):\n\n \n\n \n\n \n\n \n\nYear Ended\n\n \n\n \n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nRevenue\n\n \n\n \n\n$\n\n1,223,289\n\n \n\n \n\n$\n\n1,197,248\n\n \n\nTransaction fees (1)\n\n \n\n \n\n \n\n106,275\n\n \n\n \n\n \n\n97,857\n\n \n\nOperating results:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOperating income\n\n \n\n \n\n \n\n118,749\n\n \n\n \n\n \n\n131,333\n\n \n\nOperating margin percentage\n\n \n\n \n\n \n\n9.7\n\n%\n\n \n\n \n\n11.0\n\n%\n\nDiluted EPS\n\n \n\n \n\n$\n\n1.98\n\n \n\n \n\n$\n\n3.03\n\n \n\nSupplemental data:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nRestructuring and reorganization charges (2)\n\n \n\n \n\n$\n\n19,818\n\n \n\n \n\n$\n\n13,323\n\n \n\nExecutive transition costs\n\n \n\n \n\n \n\n-\n\n \n\n \n\n \n\n352\n\n \n\nAcquisition-related costs:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAmortization of acquired intangible assets\n\n \n\n \n\n \n\n13,805\n\n \n\n \n\n \n\n14,014\n\n \n\nEarn-out compensation\n\n \n\n \n\n \n\n14,019\n\n \n\n \n\n \n\n5,644\n\n \n\nTransaction-related costs\n\n \n\n \n\n \n\n13,717\n\n \n\n \n\n \n\n381\n\n \n\nStock-based compensation (2)\n\n \n\n \n\n \n\n46,126\n\n \n\n \n\n \n\n34,385\n\n \n\nLoss on extinguishment of debt\n\n \n\n \n\n \n\n453\n\n \n\n \n\n \n\n-\n\n \n\n(1)\nTransaction fees are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees under our payment services. contracts. Transaction fees are included in revenue in our Income Statement (and not netted against revenue) because we maintain control and act as the principal over the integrated service provided under our payment services customer contracts.\n\n(2)\nRestructuring and reorganization charges include stock-based compensation which is not included in the stock-based compensation line in the table above, and depreciation, which has not been recorded to the depreciation line on our Income Statement.\n\nRevenue. Revenue for 2025 was $1,223.3 million, a 2.2% increase when compared to $1,197.2 million for 2024. The increase in revenue can be mainly attributed to the continued growth of our SaaS and related solutions.\n\nOperating Results. Operating income for 2025 was $118.7 million, or a 9.7% operating income margin percentage, compared to $131.3 million, or an 11.0% operating income margin percentage for 2024. The decrease in operating income can mainly be attributed to higher acquisition-related costs and stock-based compensation.\n\nDiluted Earnings Per Share (“EPS”). Diluted EPS for 2025 was $1.98 compared to $3.03 for 2024, with the decrease mainly attributed to the lower operating income, discussed above, and a higher effective income tax rate.\n\nBalance Sheet and Cash Flows. As of December 31, 2025, we had cash and cash equivalents of $180.0 million, compared to $161.8 million as of December 31, 2024. Cash flows from operating activities for 2025 were $155.9 million, compared to $135.7 million for 2024. See the Liquidity section below for further discussion of our cash flows.\n\n28\n\n \n\nSignificant Customer Relationships\n\nA large percentage of our revenue is generated from a limited number of customers in the global communications industry, with our three largest customers being, Charter Communications Inc. (“Charter”), Comcast Corporation (“Comcast”), and DISH Network L.L.C. We have significant customer concentration, with Charter and Comcast each exceeding 10% of our revenue.\n\n \n\nCharter. For 2025 and 2024, revenue from Charter was $236 million and $240 million, respectively, representing approximately 19% and 20% of our total revenue. In September 2025, we entered into an amendment (the \"Amendment\") to our current agreement with Charter. The key terms of the Amendment are as follows:\n\n•\nThe Amendment extends our contractual relationship with Charter through September 30, 2031.\n\n•\nThe revenue to be generated under the Amendment is based primarily on monthly charges for SaaS and related services per Charter customer account, and various other ancillary services based on actual usage. The Amendment includes reduced price escalators for a portion of 2025 and annual fixed-price escalators beginning in 2026. We did not provide a renewal discount to Charter in the Amendment.\n\n•\nThe Amendment contains certain financial commitments both throughout the term and associated with the number of Charter customer accounts that are to be processed on our solutions.\n\n•\nWe maintain the exclusive right to provide print and mail services to all current and future Charter customer accounts through the term of the Amendment.\n\n•\nThe Amendment contains certain rights and obligations of both parties, including the following key items: (i) the termination of the agreement under certain conditions; (ii) various service level commitments; and (iii) remedies and limitations on liabilities associated with specified breaches of contractual obligations.\n\n \n\nThe foregoing does not constitute a complete summary of the terms of the Amendment and is qualified by reference to the Amendment, which is filed with confidential information redacted, as Exhibit 10.28K to this Form 10-K.\n\nComcast. For 2025 and 2024, revenue from Comcast was $210 million and $225 million, respectively, representing approximately 17% and 19% of our total revenue. Our agreement with Comcast runs through December 31, 2030.\n\nCopies of the Comcast Agreement and related amendments, with confidential information redacted, are included in the exhibits to this Form 10-K.\n\nContract Termination\n\nIt is customary for us to enter into software implementation projects with certain customers. These implementation projects range from relatively short and noncomplex projects to long and complex projects, ranging from several months to several years in duration depending on the specifics of the project.\n\nOn July 5, 2025, we terminated a Master Services Agreement (the “MSA”) for one of our implementation projects in the Latin America region on the basis that the customer unlawfully renounced its obligations under the MSA. At this time, there is no work being performed on the project and we are pursuing any and all available remedies.\n\nThrough the contract termination date, we recognized $1.4 million in revenue during 2025 related to this project. As of December 31, 2025, we had accounts receivable of $18.1 million ($1.3 million billed and $16.8 million unbilled) related to this project. As of the date of this filing, we do not believe there has been an impairment to the carrying values of the assets and believe such amounts are recoverable per the terms of the MSA or as a matter of common law. However, if we are not successful in collecting the amount expected under the terms of the MSA or as a matter of common law, it is possible that an impairment of these assets could result.\n\n \n\n29\n\n \n\nStock-Based Compensation\n\nStock-based compensation is included in the following captions in our Income Statements as follows (in thousands):\n\n \n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\n \n\nCost of revenue\n\n \n\n$\n\n6,325\n\n \n\n \n\n$\n\n5,078\n\n \n\n \n\nResearch and development\n\n \n\n \n\n4,106\n\n \n\n \n\n \n\n3,796\n\n \n\n \n\nSelling, general and administrative\n\n \n\n \n\n35,695\n\n \n\n \n\n \n\n25,512\n\n \n\n \n\nRestructuring and reorganization charges\n\n \n\n \n\n(862\n\n)\n\n \n\n \n\n(822\n\n)\n\n \n\nTotal stock-based compensation\n\n \n\n$\n\n45,264\n\n \n\n \n\n$\n\n33,564\n\n \n\n \n\nStock-based compensation increased in 2025 due to the accelerated vesting of certain awards per the terms of the Merger Agreement. See Notes 2, 3, and 14 to our Financial Statements for additional discussion of our stock-based compensation.\n\nCritical Accounting Policies and Estimates\n\nThe preparation of our Financial Statements in conformity with accounting principles generally accepted in the U.S. requires us to select appropriate accounting policies, and to make judgments and estimates affecting the application of those accounting policies. On an ongoing basis, we evaluate our estimates and assumptions. In applying our accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in our Financial Statements.\n\nWe believe that of our significant accounting policies, which are described in the notes to our Financial Statements, the following accounting policies and specific estimates involve a greater degree of judgment and complexity.\n\nRevenue Recognition. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products and services. We derive our revenue from SaaS-based revenue management platform arrangements, managed services arrangements, SaaS payments platform arrangements, software license and service arrangements, professional services arrangements, and bundled service arrangements. These arrangements are often complex long-term contracts that include multiple performance obligations. Key factors considered in accounting for these arrangements include the following criteria: (i) identification of performance obligations within the contract; (ii) determination of the transaction price as our contracts may include both fixed and variable consideration; (iii) determination of stand-alone selling price for each performance obligation and the allocation of value between the performance obligations; and (iv) calculation of revenue recognized in each period which may include estimates to measure progress for delivery.\n\nWe generally determine stand-alone selling prices using pricing calculations (which include regional market factors) for our software license and maintenance fees, and cost-plus margins for services. The pricing calculations can be complex and require estimates based on expected volumes and/or costs to complete a project. Additionally, for certain of our software license and professional service performance obligations that are satisfied over time, we use an hours-based method to measure progress for delivery based on the total expected hours to complete a project. These estimates are inherently complex and require significant judgment by us. Changes in estimates as a result of additional information as work progresses on a project are inherent characteristics of this method of revenue recognition as we are exposed to business risks in completing these types of performance obligations. The estimation process to support our hours-based recognition method is more difficult for projects of greater length and/or complexity.\n\nOur contracts are subject to modification by amendments, change requests, and/or statements of work. Such modifications may occur frequently. The accounting for contract modifications is complex and requires significant judgments to be made by us as to whether the contract modification is treated as either a separate contract or part of the existing contract.\n\nThe evaluation of the factors above and ultimate revenue recognition decision requires us to make significant judgments and estimates. Our judgments and estimates could have a significant effect on revenue recognized in any period by changing the amount and/or the timing of the revenue recognized.\n\nIncome Taxes. We are a U.S.-based multinational company operating in multiple U.S. and foreign jurisdictions. We are required to estimate our income tax liability in each jurisdiction in which we operate, including U.S. Federal, state, and foreign income taxes.\n\n30\n\n \n\nVarious judgments are required in evaluating our income tax positions and determining our provisions for income taxes. We regularly assess the likelihood of the future realization of our deferred income tax assets. To the extent we believe that it is not more likely than not that a deferred income tax asset will be realized, a valuation allowance is established. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all the available evidence, both positive and negative, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for (benefit from) income taxes in the period in which such determination is made.\n\nDuring the ordinary course of our business, there are certain transactions and calculations for which the ultimate income tax determination may be uncertain. In addition, we may be subject to examination of our income tax returns by various tax authorities which could result in adverse outcomes. For these reasons, we establish a liability associated with unrecognized tax benefits based on estimates of whether additional taxes and interest may be due. We adjust this liability based upon changing facts and circumstances, such as the closing of a tax audit, the closing of a tax year upon the expiration of a statute of limitations, or the refinement of an estimate. Should any of the factors considered in determining the adequacy of this liability change significantly, an adjustment to the liability may be necessary. Due to the potential significance of these issues, such an adjustment could be material.\n\nLoss Contingencies. In the ordinary course of business, we are subject to potential claims related to various items including but not limited to the following: (i) legal and regulatory matters; (ii) vendor contracts; (iii) solution and service delivery matters; (iv) labor matters; and (v) certain tax matters. Accounting and disclosure requirements for loss contingencies require us to assess the likelihood of any adverse judgments in a range of potential outcomes for these matters. A determination of the amount of reserves for such contingencies, if any, is based on an analysis of the issues, often with the assistance of legal counsel. The evaluation of such issues, and our ultimate accounting and disclosure decisions, are by their nature, subject to various estimates and highly subjective judgments. Should any of the factors considered in determining the adequacy of any required reserves change significantly, an adjustment to the reserves may be necessary. Due to the potential significance of these issues, such an adjustment could be material.\n\nDetailed Discussion of Results of Operations\n\nThe following discussion includes a comparison of our results of operations and liquidity for 2025 compared to 2024. For a discussion of the 2024 compared to 2023, please refer to Part II, Item 7, \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025.\n\nRevenue. Revenue for 2025 was $1,223.3 million, a 2.2% increase when compared to $1,197.2 million for 2024.\n\n \n\nRevenue by type for 2025 and 2024 was as follows (in thousands):\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nRevenue:\n\n \n\n \n\n \n\n \n\n \n\n \n\nSaaS and related solutions\n\n \n\n$\n\n1,101,700\n\n \n\n \n\n$\n\n1,069,325\n\n \n\nSoftware and services\n\n \n\n \n\n74,305\n\n \n\n \n\n \n\n80,935\n\n \n\nMaintenance\n\n \n\n \n\n47,284\n\n \n\n \n\n \n\n46,988\n\n \n\nTotal revenue\n\n \n\n$\n\n1,223,289\n\n \n\n \n\n$\n\n1,197,248\n\n \n\nThe increase in revenue is primarily attributed to the continued growth of our SaaS and related solutions revenue, which includes the revenue generated by our businesses acquired during the second quarter of 2024. Additionally, during 2025 we recognized approximately $6 million of revenue during the second quarter from a software license arrangement that partially offsets the lower 2025 professional services revenue.\n\nWe use the location of the customer as the basis of attributing revenue to individual countries and corresponding geographic region. Revenue by geographic region for 2025 and 2024 was as follows (in thousands):\n\n \n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nAmericas (principally the U.S.)\n\n \n\n$\n\n1,043,183\n\n \n\n \n\n$\n\n1,038,235\n\n \n\nEurope, Middle East, and Africa\n\n \n\n \n\n124,860\n\n \n\n \n\n \n\n104,789\n\n \n\nAsia Pacific\n\n \n\n \n\n55,246\n\n \n\n \n\n \n\n54,224\n\n \n\nTotal revenue\n\n \n\n$\n\n1,223,289\n\n \n\n \n\n$\n\n1,197,248\n\n \n\n \n\n31\n\n \n\nTotal Operating Expenses. Our operating expenses for 2025 increased 3.6% to $1,104.5 million, from $1,065.9 million for 2024. The increase in total operating expenses is mainly due to: (i) $11.7 million of higher stock-based compensation discussed above; (ii) acquisition-related costs recognized in 2025, to include $13.7 million of transaction-related costs related to the Merger and approximately $10 million of DGIT earn-out compensation; (iii) a $6.5 million increase in restructuring and reorganization charges; and (iv) the higher cost of SaaS and related solutions, reflective of the higher SaaS and related solutions revenue between periods. These additional costs were offset to a certain degree by the cost efficiency actions taken to optimize our capacity and better align resources to areas of the business with higher growth profiles. The components of total operating expenses are discussed in more detail below.\n\nCost of Revenue (Exclusive of Depreciation). Our cost of revenue consist principally of the following: (i) computing capacity and network communications costs; (ii) statement production costs (e.g., labor, paper, envelopes, equipment, equipment maintenance, etc.); (iii) transaction fees, which are primarily comprised of fees paid to third-party payment processors and financial institutions and interchange fees; (iv) customer support organizations (e.g., customer support call center, account management, etc.); (v) professional services organization; (vi) various product delivery and support organizations (e.g., managed services delivery, product management, product maintenance, etc.); (vii) third-party software costs and/or royalties related to certain software products; (viii) facilities and infrastructure costs related to the statement production and support organizations; and (ix) amortization of acquired intangibles. The costs related to new solution development (including significant enhancements to existing products and services) are included in R&D expense.\n\nThe cost of revenue for 2025 was $623.6 million, a 1.5% increase when compared to $614.5 million for 2024. The increase in cost of revenue is reflective of the increase in SaaS and related solutions revenue between periods. Total cost of revenue as a percentage of revenue for 2025 and 2024 was 51.0% and 51.3%, respectively.\n\nR&D Expense (Exclusive of Depreciation). R&D expense for 2025 was $161.6 million, a 2.1% increase when compared to $158.2 million for 2024, with the increase mainly attributed to increased R&D investments in our faster growing SaaS solutions, such as Ascendon monetization; quote and order; and payments. Delivering future-ready solutions that have best-in-industry innovation (including new AI capabilities) is a key competitive advantage for us. As a percentage of total revenue, R&D expense for 2025 and 2024 was 13.2%, for both periods.\n\nSelling, General, and Administrative (\"SG&A\") Expense (Exclusive of Depreciation). SG&A expense for 2025 was $281.5 million, a 9.0% increase from $258.3 million for 2024. The increase in SG&A expense between 2025 and 2024 is primarily due to: (i) $10.2 million of higher stock-based compensation; and (ii) acquisition related costs recognized in 2025, to include $12.9 million of transaction-related costs related to the Merger and approximately $10 million of DGIT earn-out compensation; offset by a decrease in employee-related costs, due to the cost efficiency actions, discussed above. As a percentage of total revenue, SG&A expense for 2025 and 2024 was 23.0% and 21.6%, respectively.\n\nDepreciation. Depreciation expense for 2025 was $18.1 million, a 16.3% decrease when compared to $21.6 million for 2024. This decrease can be primarily attributed to the decreased level of capital expenditures we have made over the past several years and the closure of our design and delivery center in Crawfordville, Florida, discussed below.\n\nRestructuring and Reorganization Charges. In 2025 and 2024, we implemented cost reduction and efficiency initiatives that resulted in restructuring and reorganization charges of $19.8 million and $13.3 million, respectively. The restructuring and reorganization charges for 2025 relate mainly to cost efficiency actions to optimize our capacity and better align resources along with costs associated with the closure of our design and delivery center in Crawfordville, Florida. These activities have resulted in restructuring charges of $15.8 million related to involuntary terminations.\n\n \n\nSee Note 9 to our Financial Statements for additional discussion.\n\nOperating Income. Operating income for 2025 was $118.7 million, or 9.7% of total revenue, compared to $131.3 million, or 11.0% of total revenue for 2024. The decrease in operating income in 2025 can mainly be attributed to the increase in acquisition-related costs and stock-based compensation between years, partially offset by the benefits received from the cost efficiency actions, discussed above.\n\nInterest Income. Interest income for 2025 was $5.2 million, a $3.5 million decrease when compared to $8.7 million for 2024, with the decrease primarily attributed to lower cash balances being swept into overnight money market accounts on a daily basis.\n\nLoss on Extinguishment of Debt. In March 2025, we entered into the 2025 Credit Agreement, which replaced the 2021 Credit Agreement (see Note 6 to our Financial Statements). As a result, we incurred a loss of $0.5 million related to the write-off of debt issuance costs.\n\nOther, net. Other, net for 2025 was $3.8 million of other expense, a $6.5 million change when compared to $2.7 million of other income for 2024, with the change primarily the result of foreign currency transaction losses due to the weakening of the U.S. dollar.\n\n32\n\n \n\nIncome Tax Provision. Our effective income tax rates for 2025 and 2024 were approximately 38% and 23%, respectively. The 2025 effective income tax rate increase was primarily driven by the following permanent and non-cash expense items: (i) the tax impact of the accelerated vesting of certain stock awards; (ii) the disallowance of transaction-related costs associated with the Merger; and (iii) the impact of the DGIT earn-out compensation recognized in 2025, for which a valuation allowance has been established for income tax purposes. The 2024 effective income tax rate benefited from the release of valuation allowances related to certain U.S. and foreign deferred tax assets and the utilization of foreign tax credits.\n\nLiquidity\n\nCash and Liquidity. As of December 31, 2025, our principal sources of liquidity were cash and cash equivalents of $180.0 million, compared to $161.8 million as of December 31, 2024.\n\nDuring the first quarter of 2025, we entered into the 2025 Credit Agreement, which consists of a $600.0 million five-year revolver, (the \"2025 Revolver\"), which replaced our $600.0 million five-year credit agreement entered into September 2021, the 2021 Credit Agreement. As of December 31, 2025, we had $125.0 million outstanding on the 2025 Revolver and have issued a standby letter of credit for $0.2 million that counts against the available 2025 Revolver balance, leaving $474.8 million available to us. The 2025 Credit Agreement contains customary affirmative, negative, and financial covenants. As of December 31, 2025, and the date of this filing, we believe we are in compliance with the provisions of the 2025 Credit Agreement.\n\nOur cash and cash equivalents balances as of the end of the indicated periods were located in the following geographical regions (in thousands):\n\n \n\n \n\n \n\nDecember 31, 2025\n\n \n\n \n\nDecember 31, 2024\n\n \n\nAmericas (principally the U.S.)\n\n \n\n$\n\n124,547\n\n \n\n \n\n$\n\n102,417\n\n \n\nEurope, Middle East, and Africa\n\n \n\n \n\n41,128\n\n \n\n \n\n \n\n43,609\n\n \n\nAsia Pacific\n\n \n\n \n\n14,336\n\n \n\n \n\n \n\n15,763\n\n \n\nTotal cash and cash equivalents\n\n \n\n$\n\n180,011\n\n \n\n \n\n$\n\n161,789\n\n \n\nWe generally have ready access to substantially all of our cash and cash equivalents, but may face limitations on moving cash out of certain foreign jurisdictions due to currency controls and potential negative economic consequences.\n\nAs of December 31, 2025, we had $1.8 million of cash restricted as to use primarily to collateralize guarantees included in our non-current asset balance. In addition, we had $350.4 million of settlement and merchant reserve assets which are deemed restricted due to contractual restrictions with the merchants and restrictions arising from our policy and intention. It has historically been our policy to segregate settlement and merchant reserve assets from our operating cash balances and we intend to continue to do so.\n\nCash Flows from Operating Activities. We calculate our cash flows from operating activities beginning with net income, adding back the impact of non-cash items or non-operating activity (e.g., depreciation, amortization, impairments, gain/loss on items such as investments, lease modifications, and debt extinguishments/conversions, unrealized foreign currency transactions gain/loss, deferred income taxes, stock-based compensation, etc.), and then factoring in the impact of changes in operating assets and liabilities.\n\nOur primary source of cash is from our operating activities. Our current business model consists of a significant amount of recurring revenue sources related to our long-term revenue management solutions and managed services arrangements (primarily billed monthly), payments transaction services (primarily billed monthly), and software maintenance agreements (which may be billed monthly, quarterly, or annually). This recurring revenue base provides us with a reliable and predictable source of cash. In addition, software license fees and professional services revenue are sources of cash, but the payment streams for these items are less predictable.\n\nThe primary use of our cash is to fund our operating activities. Over half of our total operating costs relate to labor costs (both employees and contracted labor) for the following: (i) compensation; (ii) related fringe benefits; (iii) incentive compensation; and (iv) reimbursements for travel and entertainment expenses. Other operating expenses consist of: (i) computing capacity and related services and communication lines for our outsourced cloud-based business; (ii) transaction fees paid in conjunction with the delivery of services under our payment services contracts; (iii) hardware and software maintenance and other SaaS-based services; (iv) paper, envelopes, and related supplies for our customer communications; and (v) rent and related facility costs. These items are purchased under a variety of both short-term and long-term contractual commitments. A discussion of our material contractual obligations is provided below.\n\n33\n\n \n\nOur 2025 and 2024 net cash flows from operating activities, broken out between operations and changes in operating assets and liabilities, for the indicated quarterly periods are as follows (in thousands):\n\n \n\n \n\n \n\nOperations\n\n \n\n \n\nChanges in Operating Asset and Liabilities\n\n \n\n \n\nNet Cash Provided by (Used in) Operating Activities – Totals\n\n \n\nCash Flows from Operating Activities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n2025:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nMarch 31 (1)\n\n \n\n$\n\n40,619\n\n \n\n \n\n$\n\n(29,150\n\n)\n\n \n\n$\n\n11,469\n\n \n\nJune 30\n\n \n\n \n\n38,999\n\n \n\n \n\n \n\n(1,673\n\n)\n\n \n\n \n\n37,326\n\n \n\nSeptember 30\n\n \n\n \n\n41,324\n\n \n\n \n\n \n\n6,619\n\n \n\n \n\n \n\n47,943\n\n \n\nDecember 31\n\n \n\n \n\n44,781\n\n \n\n \n\n \n\n14,420\n\n \n\n \n\n \n\n59,201\n\n \n\nTotal\n\n \n\n$\n\n165,723\n\n \n\n \n\n$\n\n(9,784\n\n)\n\n \n\n$\n\n155,939\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n2024:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nMarch 31 (2)\n\n \n\n$\n\n51,655\n\n \n\n \n\n$\n\n(81,006\n\n)\n\n \n\n$\n\n(29,351\n\n)\n\nJune 30\n\n \n\n \n\n35,625\n\n \n\n \n\n \n\n7,480\n\n \n\n \n\n \n\n43,105\n\n \n\nSeptember 30\n\n \n\n \n\n44,354\n\n \n\n \n\n \n\n(4,895\n\n)\n\n \n\n \n\n39,459\n\n \n\nDecember 31 (3)\n\n \n\n \n\n44,805\n\n \n\n \n\n \n\n37,699\n\n \n\n \n\n \n\n82,504\n\n \n\nTotal\n\n \n\n$\n\n176,439\n\n \n\n \n\n$\n\n(40,722\n\n)\n\n \n\n$\n\n135,717\n\n \n\n(1)\nCash flows from operating activities for the first quarter of 2025 reflect the impact of the payment of the 2024 year-end accrued employee incentive compensation.\n\n(2)\nCash flows from operating activities for the first quarter of 2024 were negatively impacted by unfavorable working capital changes, to include the impact of the payment of the 2023 year-end accrued employee incentive compensation, and timing of trade accounts receivable.\n\n(3)\nCash flows from operating activities for the fourth quarter of 2024 were positively impacted by favorable changes in working capital, which can mainly be attributed to the timing of our estimated federal and state income tax payments, and decreases in our accounts receivable balance.\n\nVariations in our net cash provided by (used in) operating activities are generally related to the changes in our operating assets and liabilities (related mostly to fluctuations in timing of customer payments and changes in accrued expenses), and generally over longer periods of time, do not significantly impact our cash flows from operations.\n\nSignificant fluctuations in key operating assets and liabilities between 2025 and 2024 that impacted our cash flows from operating activities are as follows:\n\nBilled Trade Accounts Receivable\n\nManagement of our billed trade accounts receivable is one of the primary factors in maintaining strong cash flows from operating activities. These balances include significant billings for several non-revenue items (primarily postage, sales tax, and deferred revenue items). As a result, we evaluate our performance in collecting our billed trade accounts receivable through our calculation of Days Billings Outstanding (“DBO”) rather than a typical Days Sales Outstanding (“DSO”) calculation.\n\nOur gross and net billed trade accounts receivable and related allowance for expected losses (“Allowance”) as of the end of the indicated quarterly periods, and the related DBOs for the quarters then ended, are as follows (in thousands, except DBOs):\n\n \n\nQuarter Ended\n\n \n\nGross\n\n \n\n \n\nAllowance\n\n \n\n \n\nNet Billed\n\n \n\n \n\nDBOs\n\n \n\n2025:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nMarch 31\n\n \n\n$\n\n269,326\n\n \n\n \n\n$\n\n(4,152\n\n)\n\n \n\n$\n\n265,174\n\n \n\n \n\n \n\n66\n\n \n\nJune 30\n\n \n\n \n\n262,975\n\n \n\n \n\n \n\n(3,959\n\n)\n\n \n\n \n\n259,016\n\n \n\n \n\n \n\n66\n\n \n\nSeptember 30\n\n \n\n \n\n272,355\n\n \n\n \n\n \n\n(4,331\n\n)\n\n \n\n \n\n268,024\n\n \n\n \n\n \n\n64\n\n \n\nDecember 31\n\n \n\n \n\n303,001\n\n \n\n \n\n \n\n(3,277\n\n)\n\n \n\n \n\n299,724\n\n \n\n \n\n \n\n63\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n2024:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nMarch 31\n\n \n\n$\n\n281,051\n\n \n\n \n\n$\n\n(5,692\n\n)\n\n \n\n$\n\n275,359\n\n \n\n \n\n \n\n67\n\n \n\nJune 30\n\n \n\n \n\n270,934\n\n \n\n \n\n \n\n(4,720\n\n)\n\n \n\n \n\n266,214\n\n \n\n \n\n \n\n66\n\n \n\nSeptember 30\n\n \n\n \n\n284,740\n\n \n\n \n\n \n\n(4,810\n\n)\n\n \n\n \n\n279,930\n\n \n\n \n\n \n\n64\n\n \n\nDecember 31\n\n \n\n \n\n269,944\n\n \n\n \n\n \n\n(3,041\n\n)\n\n \n\n \n\n266,903\n\n \n\n \n\n \n\n64\n\n \n\n \n\n34\n\n \n\nAs of December 31, 2025 and 2024, approximately 95% and 96%, respectively, of our net billed trade accounts receivable balances were less than 60 days past due.\n\nWe may experience adverse impacts to our DBOs if and when customer payment delays occur. However, the recurring monthly payments that cross a reporting period-end do not raise collectability concerns, as payment is generally received subsequent to quarter-end. All other changes in our gross and net billed accounts receivable reflect the normal fluctuations in the timing of customer payments at quarter-end, as evidenced by our relatively consistent DBO metric.\n\nAs a global provider of solutions and services, a portion of our trade accounts receivable balance relates to international customers. This diversity in the geographic composition of our customer base may adversely impact our DBOs as longer billing cycles (i.e., billing terms and cash collection cycles) are an inherent characteristic of international software and professional services transactions. As a result, we may experience fluctuations in our trade accounts receivable balance as our ability to invoice and collect arrangement fees is dependent upon, among other things: (i) the completion of various customer administrative matters, local country billing protocols and processes (including local cultural differences), and non-customer administrative matters; (ii) meeting certain contractual invoicing milestones and dates; (iii) the overall project status in certain situations in which we act as a subcontractor to another vendor on a project; or (iv) currency controls in certain foreign jurisdictions.\n\nUnbilled Trade Accounts Receivable\n\nUnbilled trade accounts receivable (current and non-current) decreased $3.5 million to $76.7 million as of December 31, 2025, from $80.2 million as of December 31, 2024. These unbilled trade accounts receivable balances relate primarily to implementation projects where various milestone billing dates have not yet been reached or are delayed and to timing related to billing cutoff or contractual billing dates. As discussed in Contract Termination above, as of December 31, 2025, $16.8 million of the unbilled trade accounts receivable balance is related to an implementation project for a contract that we terminated in the third quarter of 2025. Unbilled trade accounts receivable are an inherent characteristic of certain software and services transactions and may fluctuate between quarters, as these types of transactions typically have scheduled invoicing terms over several quarters, as well as certain milestone billing events.\n\nAccrued Employee Compensation\n\nAccrued employee compensation increased $13.1 million to $81.0 million as of December 31, 2025, from $67.9 million as of December 31, 2024, due primarily to higher incentive-compensation accruals in 2025.\n\nCash Flows from Investing Activities. Our typical investing activities consist of purchases of software, property, and equipment, and in 2024, our business combination activities, which are discussed below.\n\nPurchases of Software, Property, and Equipment\n\nOur annual capital expenditures for software, property, and equipment for 2025 and 2024 were $14.5 million and $22.4 million, respectively. Our capital expenditures for these periods consisted principally of investments in software and related equipment.\n\nBusiness Combinations, net of Cash and Settlement Assets Acquired\n\nThe cash paid for the acquisitions discussed in Note 8 to our Financial Statements, less cash and settlement assets acquired, resulted in net cash provided by business combinations for 2024 of $17.3 million.\n\nCash Flows from Financing Activities. Our financing activities typically consist of activities with our common stock, various debt-related transactions, and settlement and merchant reserve activity, which are discussed below. Additionally, during 2025 and 2024, we made deferred acquisition payments related to our previous acquisitions of $0.3 million and $2.5 million, respectively.\n\nIssuance of Common Stock\n\nProceeds from the issuance of common stock for 2025 and 2024 were $2.5 million and $3.1 million, respectively, and relate primarily to our employee stock purchase plan.\n\nCash Dividends Paid on Common Stock\n\nDuring 2025 and 2024, our Board approved dividend payments totaling $36.9 million and $34.8 million, respectively. During 2025 and 2024, we paid dividends of $37.4 million and $26.6 million, respectively, with the differences between the amount approved and paid attributed to the timing of the quarterly dividend payments and dividends accrued on unvested incentive shares that are paid upon vesting.\n\nRepurchase of Common Stock\n\nDuring 2025 and 2024 we repurchased approximately 788,000 shares and 1,185,000 shares of our common stock under the guidelines of our Stock Repurchase Program for $49.7 million and $57.8 million, respectively.\n\n35\n\n \n\nAdditionally, outside of our Stock Repurchase Program, during 2025 and 2024, we repurchased from our employees and then canceled approximately 470,000 shares and 177,000 shares of our common stock for $33.1 million and $9.4 million, respectively, in connection with minimum tax withholding requirements resulting from the vesting of restricted stock under our stock incentive plans.\n\nDuring 2025 and 2024, we paid $83.2 million and $67.7 million, respectively, for our total repurchases of common stock, with any differences when compared to the amounts purchased attributed to the timing of the settlement and the excise tax on share repurchases.\n\nOn December 31, 2025, all remaining Board authorized repurchases under our Stock Repurchase Program expired.\n\nSee Note 13 to our Financial Statements for additional discussion of our repurchases of common stock.\n\nLong-Term Debt\n\nDuring the first quarter of 2025, we borrowed $10.0 million from our 2021 Revolver for general corporate purposes. In March 2025, we entered into the 2025 Credit Agreement and as a result, we borrowed $140.6 million under the 2025 Revolver and repaid: (i) the outstanding 2021 Term Loan principal balance of $125.6 million; (ii) the outstanding 2021 Revolver balance of $10.0 million; and (iii) $2.3 million of debt financing costs; with the remainder used for general corporate purposes. Subsequently, we have repaid $15.6 million of the 2025 Revolver, leaving us with an outstanding balance of $125.0 million.\n\nDuring 2024, we made principal repayments on our 2021 Term Loan of $7.5 million. Additionally, during 2024, we borrowed and subsequently repaid $15.0 million from our 2021 Revolver for general corporate purposes.\n\nSee Note 6 to our Financial Statements for additional discussion of our long-term debt.\n\nSettlement and Merchant Reserve Activity\n\nDuring 2025 and 2024, we had net settlement and merchant reserve activity of $6.0 million and $23.9 million, respectively, related to the cash collected, held on behalf, and paid to our merchants related to our payments services and the net change in deposits held on behalf of our merchants. These balances can significantly fluctuate between periods due to activity at the end of the period and the day in which the period ends.\n\nSee Note 3 to our Financial Statements for additional discussion of our settlement and merchant reserves.\n\nContractual Obligations and Other Commercial Commitments and Contingencies\n\nWe have various contractual obligations that are recorded as liabilities in our Balance Sheets. Other items, such as certain purchase commitments and other executory contracts, are not recognized as liabilities in our Balance Sheets but are required to be disclosed.\n\nOur 2025 Credit Agreement requires quarterly commitment fee payments and interest payments based on the interest election period. The 2025 Credit Agreement contains certain customary prepayment or repayment provisions. As specified in the 2025 Credit Agreement, if certain customary events were to occur, we may be required to pay all amounts outstanding under the 2025 Credit Agreement, together with interest payable thereon. As of December 31, 2025, the outstanding balance on the 2025 Revolver was $125.0 million. Our estimated interest for our 2025 Credit Agreement through its maturity date includes: (i) approximately $28 million for the 2025 Revolver; and (ii) approximately $3 million for the commitment fee. These amounts are based on the current leverage ratio and Secured Overnight Financing Rate (\"SOFR\") and assumes no additional amounts are borrowed or repaid on the 2025 Revolver. Should the Merger, discussed above, be consummated, this would result in the outstanding loans under the 2025 Credit Agreement being repaid and commitments thereunder being terminated at the closing.\n\nOur 2023 Convertible Notes are convertible at the option of the noteholders before June 15, 2028 upon the occurrence of certain events. On or after June 15, 2028 and until the close of business on the second scheduled trading day immediately preceding the maturity date, noteholders may convert all or any portion of their notes at any time regardless of these conditions. Upon settlement, our cash obligation will not exceed the principal amount, and interest paid through maturity is at a rate of 3.875%. Our estimated remaining interest for our 2023 Convertible Notes through their maturity date of September 15, 2028 is approximately $49 million. Should the Merger, discussed above, be consummated, this would result in a conversion trigger for the note holders.\n\nOur long-term debt obligations are discussed in more detail in Note 6 to our Financial Statements.\n\nOur operating leases are discussed in Note 7 to our Financial Statements. As of December 31, 2025, the value of our obligations under our real estate leases were approximately $30 million.\n\n36\n\n \n\nOur contractual commitments consist primarily of our expected minimum base fees under our outsourced computing service agreement with Ensono, Inc., which includes embedded lease components (discussed in Notes 7 and 12 to our Financial Statements), and to a lesser degree, cloud computing, networking, and communication services. As of December 31, 2025, the total value of our contractual commitments were approximately $501 million, with approximately $107 million due within the next twelve months.\n\nOff-Balance Sheet Arrangements\n\nOur off-balance sheet arrangements are mainly limited to money transmitter bonds, performance bonds, and a standby letter of credit. These arrangements do not have a material impact and are not reasonably likely to have a material future impact to our financial condition, results of operations, liquidity, capital expenditures, or capital resources. See Note 12 to our Financial Statements for additional information on these guarantees.\n\nCapital Resources\n\nThe following are the key items to consider in assessing our sources and uses of capital resources:\n\nCurrent Sources of Capital Resources. Below are the key items to consider in assessing our current sources of capital resources:\n\n•\nCash and Cash Equivalents. As of December 31, 2025, we had cash and cash equivalents of $180.0 million, of which approximately 64% was in U.S. dollars and held in the U.S. For the remainder of the monies denominated in foreign currencies and/or located outside the U.S., we do not anticipate any material amounts being unavailable for use in funding our business, but may face limitations on moving cash out of certain foreign jurisdictions due to currency controls and potential negative economic consequences.\n\n•\nOperating Cash Flows. As described in the Liquidity section above, we believe we have the ability to generate strong cash flows to fund our operating activities and act as a source of funds for our capital resource needs, although we may experience quarterly variations in our cash flows from operations related to the changes in our operating assets and liabilities.\n\n•\nRevolving Loan Facility. In March 2025, we entered into the 2025 Credit Agreement which replaced our 2021 Credit Agreement. The 2025 Credit Agreement consists of a $600.0 million revolving loan facility, our 2025 Revolver. As of December 31, 2025, we had $125.0 million outstanding on the 2025 Revolver, and had issued a standby letter of credit of $0.2 million that counts against our available 2025 Revolver balance, leaving $474.8 million available to us. Our long-term debt obligations are discussed in more detail in Note 6 to our Financial Statements.\n\nUses/Potential Uses of Capital Resources. Below are the key items to consider in assessing our uses/potential uses of capital resources:\n\n•\nCommon Stock Repurchases. We have a Stock Repurchase Program in which we may repurchase shares in the open market or in privately negotiated transactions, including through an accelerated stock repurchase plan or under a SEC Rule 10b5-1 plan. The actual timing and amount of share repurchases are dependent on the current market conditions and other business-related factors. Upon the announcement of the Merger Agreement, we ceased any further common stock repurchases. Our common stock repurchases are discussed in more detail in Note 13 to our Financial Statements.\n\nDuring 2025, we repurchased approximately 788,000 shares of our common stock for $49.7 million (weighted-average price of $63.17 per share) under our Stock Repurchase Program.\n\nOutside of our Stock Repurchase Program, during 2025, we repurchased from our employees and then cancelled approximately 470,000 shares of our common stock for $33.1 million in connection with minimum tax withholding requirements resulting from the vesting of restricted common stock under our stock incentive plans.\n\n•\nCash Dividends. During 2025, our Board declared dividends totaling $36.9 million. In January 2026, our Board approved a quarterly cash dividend of $0.34 per share of common stock. Going forward, we expect to pay cash dividends in the normal course, with the amount and timing subject to our Board’s approval, as well as the consummation of the Merger.\n\n37\n\n \n\n•\nAcquisitions. As a result of our previous acquisition activity, during 2025 we made $0.3 million of deferred acquisition payments. Additionally, there are provisions for potential future earn-out payments of up to approximately $12 million for DGIT and $15.0 million for iCG tied to performance-based goals and a defined service period. The earn-out periods are through December 31, 2026 and June 3, 2027, respectively. During 2025, we made earn-out payments of $5.1 million, which are included in our cash flows from operating activities. As of December 31, 2025, we have accrued $15.7 million related to earn-out payments, of which we paid approximately $11 million in January 2026.\n\nAs part of our growth strategy, we are continually evaluating potential business and/or asset acquisitions and investments in market share expansion with our existing and potential new customers and expansion into verticals outside the global communications market.\n\n•\nMerger Activity. As of December 31, 2025, we have accrued approximately $10 million of acquisition-related costs related to the proposed Merger, discussed above, which will be paid upon the closing of the Merger. In December 2025, we entered into retention bonus agreements with certain key employees, providing for approximately $9 million of bonus payments to be paid immediately prior to the closing of the Merger, or upon the termination of the Merger Agreement, subject to the employee's continued employment. These bonuses are being accrued over the estimated service period. We expect to incur additional costs relating to the proposed Merger, such as financial advisory, legal, accounting, and other professional services fees, along with retention bonuses, however, these additional costs cannot be estimated at this time. If the Merger Agreement is terminated under certain specified circumstances, we will be required to pay a termination fee of $82.0 million.\n\n•\nExit of Reseller Agreements. During 2023, we exited out of two reseller agreements that were acquired with the 2018 acquisition of Forte Payment Systems, Inc. at a total cost of $9.9 million, of which $1.8 million was paid in 2023, $5.6 million was paid in 2024 and $1.3 million was paid in 2025. The remaining $1.2 million was paid in January 2026.\n\n•\nCapital Expenditures. During 2025, we spent $14.5 million on capital expenditures.\n\n•\nFinancing Agreements. We have financing agreements for certain of our internal use software. As of December 31, 2025, we have $11.4 million related to these financing agreements included in current and non-current liabilities on our Balance Sheet. During 2025, we made payments of $7.2 million related to these financing agreements.\n\n•\nLong-Term Debt. As of December 31, 2025, our long-term debt consisted of the following: (i) 2025 Credit Agreement Revolver borrowings of $125.0 million; and (ii) 2023 Convertible Notes in the principal aggregate amount of $425.0 million.\n\n2025 Credit Agreement. The mandatory payments under our 2025 Credit Agreement for the next twelve months are the cash interest expense (based upon then-current interest rates) for the 2025 Revolver (assuming no further amounts are borrowed, and the amount is not paid down) of $6.6 million. Should the Merger, discussed above, be consummated, this would result in the outstanding loans under the 2025 Credit Agreement being repaid and commitments thereunder being terminated at the closing.\n\n2023 Convertible Notes. The 2023 Convertible Notes are convertible at the option of the note holders before June 15, 2028 upon the occurrence of certain events. Should the Merger, discussed above, be consummated, this would likely result in a conversion trigger for the note holders. The Capped Call Transactions entered into in connection with the pricing of the 2023 Convertible Notes are expected to be unwound if the Merger is consummated.\n\nOur long-term debt obligations are discussed in more detail in Note 6 to our Financial Statements.\n\nIn summary, we expect to continue to have material needs for capital resources going forward, as noted above. We believe that our current cash and cash equivalents balances and the 2025 Revolver, together with cash expected to be generated in the future from our current operating activities, will be sufficient to meet our anticipated capital resource requirements for at least the next twelve months.\n\nWe have agreed to various covenants in the Merger Agreement, including, among others, to use commercially reasonable efforts to conduct our business in all material respects in the ordinary course between the execution of the Merger Agreement and the closing of the Merger. Outside of certain limited exceptions and subject to certain specified thresholds, we may not take certain actions without NEC’s prior consent. We do not believe these restrictions will prevent us from meeting our liquidity and capital resource needs or requirements, including our ongoing costs of operations, working capital needs, or capital expenditures.\n\n38"}